Provisional Tax Made Easy

Nick Roberts

In my experience mentioning “provisional tax” brings forth a groan. Unfortunately, it cannot be ignored if you are looking to minimise your outgoings, especially given the changes to the system as from the tax year 2008-2009.

Provisional tax is not an additional tax, but just a way of getting you to pay your tax early if your “residual” tax (effectively your final end-of-year tax after credits and rebates) is more than $2,500 in the previous tax year. For many taxpayers there is now going to be another option to work out how much to pay in addition to the existing standard (residual tax for the previous tax year plus 5%) and estimation options. The new GST ration option uses a ratio based upon the residual tax and GST taxable supplies for the previous year which can be advantageous for some.

The payment dates for provisional tax are changing and will be dependent upon which option you use, your balance date, whether you are GST registered, and if so how often you pay your GST. There may be two, three or six instalments per year, payable when your GST is payable. In practice this likely to lead to complexity, confusion, probably mistakes and many taxpayers being charged interest and late payment penalties.

To minimise your interest costs and avoid IRD penalties, seek advice now. Unless you are  a very small business and if you don’t do so already, get organised and produce reliable monthly financials to get a better idea of your profits. The benefits will go far beyond provisional tax.

If you have any tax or business queries of any kind telephone 0800 ASK NICK, e-mail nick@abac.co.nz or use “Contact Us” on www.abac.co.nz. The information in this article is of a general nature and should not be relied upon as a substitute for specific advice.